One of the biggest bets on the Las Vegas Strip is not a casino stock
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VICI Properties (NYSE:VICI) continues to pique the interest of investors in both the casino and real estate sectors, due in part to its standing as the single largest landowner on the Las Vegas Strip. The company leases out high-profile properties such as Mandalay Bay, Luxor Las Vegas, MGM Grand Las Vegas, Park MGM, Venetian Las Vegas, and T-Mobile Arena. Overall, VICI has 54 properties in the gaming industry, but has been diversifying recently with more leisure and entertainment asset purchases. For investors, the stock ranks high on both quantitative and qualitative analysis, although the share price is down 12% year-to-date amid broad concerns around interest rates and the U.S. economy.
The Seeking Alpha Quant Rating on VICI Properties (VICI) is the highest in the specialized REIT sector and ranks in the top 10% of all real estate stocks covered. Meanwhile, the quant score on VICI is higher than that of any casino stock. On Wall Street, 20 out of 23 firms covering the stock have a Buy-equivalent rating, while Seeking Alpha analysts are also generally bullish on the upside.
Seeking Alpha Investing Group Leader Brad Thomas noted that VICI Properties (VICI) leases its gaming properties to leading operators with years of experience in the gaming and hospitality industries. "All of their leases are structured on a triple-net basis and most contain long-term escalations tied to the CPI," he highlighted. Notably, Caesars Entertainment (CZR) is VICI's top tenant and makes up 40% of the company's annual rent, while MGM Resorts (MGM) is the second-largest tenant and makes up 35% of the company's rent. "While some might see this level of tenant concentration as concerning, the nature of the gaming industry and its regulatory environment limits the number of operators who are licensed to run a casino, making high tenant concentration somewhat unavoidable in the gaming space," he reasoned.
Seeking Alpha Investing Group Leader Daniel Jones thinks the growth profile for VICI Properties (VICI) makes it stand out in comparison to peers. "The fact that management has been able to keep leverage in check, match the payout ratios of other firms, have a decent yield, and more, all while growing rather rapidly, is absolutely impressive," he wrote.
CBRE Equity Reseach issued a positive assessment of VICI Properties after meeting with management during the week. In reviewing the credit profile of the company, analyst Colin Mansfield said VICI has moderate net leverage that is declining due to contractual rent escalators, good diversification by tenant and end market, financially sound tenants, and a healthy growth pipeline. The firm expects VICI to reach 5.2X net leverage by the end of 2024 and 4.9X by the end of 2025. "This will provide ample flexibility to lean on debt financing should the Centaur option be exercised this year (given the equity price move lower year-to-date)," observed Mansfield. The expectation is that VICI has the headroom in its 5.0X to 5.5X net leverage target to fully debt fund the Centaur acquisition should it so desire. By calling the Centaur option, VICI would acquire the land and real estate assets associated with Harrah’s Hoosier Park and Indiana Grand properties.
The dividend yield for new buyers of VICI Properties (VICI) is 5.89%.
